Auditing, disclosure, and verification in decentralized decision problems

Luca Anderlini, Dino Gerardi and Roger Lagunoff

Journal of Economic Behavior & Organization, 2016, vol. 131, issue PA, 393-408

Abstract: We study the relative performance of disclosure and auditing in decentralized institutions. We consider the information transmission problem between two decision makers who take actions in sequence at two decision dates. The first decision maker has private information about a state of nature that is relevant for both decisions, and sends a message to the second. The second decision maker can commit to only observe the message (disclosure), or can retain the option to observe the action of the first decision maker (auditing) or, at some cost, to verify the state. In equilibrium, state verification will never occur and the second decision maker effectively chooses between auditing and disclosure.

Keywords: Auditing; Disclosure; Agency bias; Ideological bias (search for similar items in EconPapers)
JEL-codes: C73 D63 D72 D74 H11 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:131:y:2016:i:pa:p:393-408

DOI: 10.1016/j.jebo.2016.09.002

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